Complementary currency

A complementary currency is a currency or medium of exchange which is not a national currency, but which is thought of as supplementing or complementing national currencies.[1]:3[2]:2 Complementary currencies are usually not legal tender and their use is based on agreement between the parties exchanging the currency. According to Jérôme Blanc of Laboratoire d'Économie de la Firme et des Institutions, complementary currencies aim to protect, stimulate or orientate the economy.[3]:7 They may also be used to advance particular social, environmental, or political goals.[4]:4

When speaking about complementary currencies, a number of overlapping and often interchangeable terms are in use: local or community currencies are complementary currencies used within a locality or other form of community (such as business-based or online communities); regional currencies are similar to local currencies but used within a larger geographical region; and sectoral currencies are complementary currencies used within a single economic sector, such as education or health care. Many private currencies are complementary currencies issued by private businesses or organizations. Other terms include alternative currency, auxiliary currency, and microcurrency. Mutual credit is a form of alternative currency, and thus any form of lending that does not go through the banking system can be considered a form of alternative currency. Barters are another type of alternative currency. These are actually exchange systems, which only trade items; thus without the use of any currency whatsoever. Finally, LETS is a special form of barter which trades points for items. One point stands for one worker-hour of work.

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Complementary currencies are often designed intentionally to address specific issues, for example to increase financial stability.[5] Most complementary currencies have multiple purposes and/or are intended to address multiple issues. They can be useful for communities that do not have access to financial capital, and for adjusting peoples' spending behavior.[6] The 2006 Annual Report of the Worldwide Database of Complementary Currency Systems presented a survey of 150 complementary currency systems in which 94 respondents said that "all reasons" were selected, among cooperation, micro/small/medium enterprise development, activating the local market, reducing the need for national currency, and community development.[7]

Some alternative currencies devalue rapidly (they are called Schwundgeld); this increases monetary circulation. The Miracle of Wörgl is an event that showed the potential of this increased spending through the introduction of a local currency known as Freigeld. Local currencies also have the benefit that they cannot be spent abroad, and thus the money always keeps circulating locally, benefiting only the local economy.

Alternative currencies are reported to work as a counterbalance for the local economy. They increase in activity if the local economy slows down, and decrease in activity if the local economy goes up.[8][dubious – discuss]

As a commercial tool within a business, as opposed to a geographical social tool, a complementary currency can open a business up to a preferred source marketplace whereby they can sell their otherwise devalued or worthless spare capacity in exchange for the complementary currency. By selling their spare capacity (empty hotel rooms / under utilised staff hours / blank diary slots / excess stock) the business is able to harness the otherwise lost value gaining some key benefits such as :- Improved profits ; stronger balance sheet ; enhanced cash flow ; more customers and a growth in market share.

Alternative currencies promoted as local currencies that cannot be spent abroad have limited use.

According to professor Nikolaus Läufer, the use of local currencies such as Freigeld can only increase economic activity temporarily. Lengthy use of a local currency will ultimately result in a decline in economic activity and lead to a destabilization of the economy. This is due to the increased circulation velocity of the money as the amount in circulation decreases (as currencies as Freigeld reduce in value rapidly).[9][clarification needed]

Often there are issues related to paying tax. Some alternative currencies are considered tax-exempt, but most of them are fully taxed as if they were national currency, with the caveat that the tax must be paid in the national currency. The legality and tax-status of alternative currencies varies widely from country to country; some systems in use in some countries would be illegal in others.

Complementary currencies describe a wide group of exchange systems, currencies or scrips designed to be used in combination with standard currencies or other complementary currencies. They can be valued and exchanged in relationship to national currencies but also function as media of exchange on their own. Complementary currencies lie outside the nationally defined legal realm of legal tender and are not used as such. Rate of exchange, scope of circulation and use in combination with other currencies differs greatly between complementary currency systems, as is the case with national currency systems.

Some complementary currencies incorporate value scales based on time or the backing of real resources (gold, oil, services, etc.). A time-based currency is valued by the time required to perform a service in hours, notwithstanding the potential market value of the service. Another type of complementary monetary systems is the barter, an exchange of specific goods or services is performed without the use of any currency.

In 1982, the most widespread auxiliary currency system, the Local Exchange Trading Systems, was created. It regulates the exchange of goods and services between the members of the cooperative. Examples for an investment system of complementary currency are the Automatic Social Financial Network (ASFN) and the international crowdsourcing and crowd-funding community Evolution RA[10] whose members use their own complementary virtual currency "Сyber-gold". The introductory fee paid by the new association members is subsequently directed toward investments in a variety of commercial projects.

Some complementary currencies take advantage of demurrage fees, an intentional devaluation of the currency over time, like negative interest. This stimulates market exchanges in the devaluating currency, propagates new participation in the currency system and forces the storage of wealth (hoarding) ability usually reserved for currency into more permanent and better value-holding tools like property, improvement, education, technology, health, equity securities, etc., all of which are sheltered from the currency-based demurrage fees.

Other experimental complementary currencies use high interest fees to promote heavy competition between participants, and the removal of wealth from long term wealth holding structures (natural/material wealth, property, etc.) to aid in the process of rapid industrialization, mass production, automation and competitive innovation.[citation needed]

Monetary speculation and gambling are usually outside the design parameters of complementary currencies. Complementary currencies are often intentionally restricted in their regional spread, time of validity or sector of use and may require a membership of participating individuals or points of acceptance.

There are some complementary currencies which are regional or global, such as the Community Exchange System, WIR and Friendly Favors, Tibex in the Lazio region in Italy or the proposed global currency terra.[11]

A community currency is a type of complementary currency that has the explicit aim to support and build more equal, connected and sustainable societies. A community currency is designed to be used by a specific group.[12]